IFRS 16 effective date for the public sector

When is the IFRS 16 effective date?

IFRS 16 represents the biggest change to lease accounting in a generation and it is going to have a significant impact on both public sector and private sector reporting. IFRS 16 has been in place for private sector companies for nearly a year now having come into effect from January 2019. For public sector organisations, IFRS 16 is being applied by HM Treasury in the Government Financial Reporting Manual (FReM) from 1 April 2020.

What is IFRS 16?

IFRS 16 sets out the principles for recognising, measuring, presenting and disclosing leases. The standard replaces IAS 17 Leases and other IFRIC and SIC interpretations. The IASB introduced the new standard in recognition of the fact that the previous lease accounting model failed to accurately reflect leasing transactions. The biggest difference is in the handling of operating and finance leases. The previous standard distinguished between finance and operating leases without requiring lessees to recognise assets and liabilities arising from operating leases.

Early adoption in the public sector

Although the effective date for most public entities is April 2020, early adoption has been available since 1 April 2019 for organisations that meet specific criteria:

• The entity has at least one subsidiary that, under the Companies Act, is required to follow EU-adopted IFRS and the total assets of the subsidiary comprise at least 10% of the total assets at the group level
• The subsidiary (or subsidiaries) described above have operating lease commitments that comprise at least 10% of the operating lease
  commitments at the group level, and
• Approval to early adopt has been received from HM Treasury

FReM interpretations and adaptations

The Government Financial Reporting Manual (FReM) has adapted and interpreted IFRS 16 for the public sector context in several ways. More information on the detailed interpretation is available from HM Treasury.

Finding a solution

The changes introduced by IFRS 16 will have a significant impact on balance sheets and the calculations required for lease reporting. FMIS Lease Accounting software and FMIS Fixed Assets are specifically designed to automate these calculations saving time, improving reporting and ensuring greater accuracy than manual or Excel-based solutions. For further information please contact us via the website or call us on +44 (0) 1227 773003